Skip to main content

Sound Advice: May 19, 2021

Sell in May and Go Away? 

Thank our British cousins for the thought that it’s best to pull up one’s investment stakes in May and come back in the fall.  It harkens back to the custom of businesspeople leaving London and going off to the countryside during the warmer summer months.  Over extended periods of years, the data supports this idea, though the results, especially most recently, have been mixed.

To get a clearer view of how this works, I tallied the results of the Dow Jones Industrial Average from May 1st to October 31st and from November 1st to April 30th for every year from 1950 to 2020.  The numbers appear to be compelling.

During the May thru October span, on average, the gains averaged a paltry 0.3%.  But if you reinvested from November thru April, the typical advance was 7.3%.  No brainer, right?

Wrong?

It turns out that the results over the latest six years didn’t follow the pattern.  In 2016, 2018, and 2020, the market’s summer months were far stronger.

If we look at the long-term results by calendar quarter, there’s a similar pattern, with a slight difference.  Prior to 2020, the strongest quarters were October to December and January to March.  On average for the latest 55 years, the market rose by an average of 6.3% during that half of the year, compared with an increase of only 1.7% in the weaker quarters.

The slight difference is attributable to last year’s first-quarter plunge and the massive second-quarter rebound, which raised the long-term average for the latter period by 0.5%, placing it in line with the first calendar quarter.  That, however, was an aberration, not a shift in seasonal patterns. 

No matter how this is seen, it is clear that the market’s seasonal strength is skewed toward the colder months.  And its seasonal weakness tends to be most pronounced in late summer, early fall.

Given that observation, it’s interesting to see what happened after substantial downturns at that time of year.  Since 1965, there have been 15 third-quarter market drops of 5.0% or more.  Those pullbacks averaged 12.2%. 

Yet in the quarters directly following, 13 out of 15 showed sizable gains, averaging 7.5%, not enough to offset the prior loss, but enough to demonstrate that strength follows weakness.

Equally clear is the reality that, over time, the path of least resistance is higher.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com


Any questions? Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more